State reviews casino tax rates

A number of options to address the disparity between state gaming tax rates on racetrack casinos in New Mexico and the revenue sharing delivered to the state from tribal casinos have been delivered to a state legislative committee.

The New Mexico Gaming Control Board was asked earlier this year to undertake a study after the Ruidoso Downs Race Track and Casino repeatedly questioned a lack of tax parity with the Mescalero Apache Tribe's casino operations. In a report titled the Feasibility of Implementing a Progressive Tax Bracket for Racetrack Casinos, the board offered one scenario of a tax rate structure that ranged from 15 percent to 26 percent, varying based on the amount a racetrack casino's revenues. Currently the gaming tax paid to the state's general fund is a flat 26 percent of net take. In addition, racetrack casinos are required to pay 20 percent to racing purses. There also is a 0.25 percent cut to fund problem gambling programs. What is left for the racetrack casinos is 53.75 percent of a gaming machine's net take, which the report noted does not represent profit.

State Sen. Steven Neville, R-Aztec, successfully championed a Senate Memorial that asked the Gaming Control Board to undertake the study. He said racetracks at Ruidoso and Farmington have "tons of competition" from nearby tribal casinos that pay a much smaller share to the state and he worried about the future of the tracks.

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"It's a matter of studying whether we need to graduate or do some kind of different tax structure for the (racetrack) casino," Neville said in February.

Contacted Thursday, Neville was pleased with the study's completion.

"At least we have something on paper that we can refer to. I think one thing that's missing that I would have liked to have seen is a little more analysis, illustration of what the tracks are doing in gross sales. I suspect Ruidoso's the least and we're (Sun Ray Park in Farmington) is the second least. If we had those numbers we can start to see what the tax loss would be to the state if one of these tracks closes. They went into some analysis of how much they'd lose if we had the graduated tax. Sun Ray up here grosses probably $50 million or something like that. If they close the whole track down what would be the loss to the state? Fifty-million at 26 percent, it's a big chunk. It's what, $15 million and way exceeds the graduated way."

States with progressive gaming taxes

Fifteen states have a flat gaming tax structure, according to a 2011 study by the American Gaming Association. Another seven have a progressive tax structure. Colorado's progressive rates range from 0.2375 percent to 20 percent. In Illinois the range is 15 to 50 percent. Indiana goes from 15 to 40 percent. Iowa is between 6 and 24 percent. Mississippi's range is 4 to 12 percent. Nevada is 3.5 to 6.75 percent. And Oklahoma is 10 to 30 percent.

If New Mexico moved to a progressive tax system, the commission noted that two different methodologies could be applied. One could have flat tax tiers based on casino revenue levels. An example showed an annual revenue level of less than $15 million might be taxed at 15 percent. Between $15 million and $30 million it could be 18 percent. From $30 million to $45 million in revenue might be taxed at 20 percent. From $45 million to $65 million might be taxed at 22 percent. From $65 million to $95 million there could be a 24 percent tax rate. Racetrack casinos with revenues greater that $95 million could be assessed at 26 percent.

Under the flat tax example, a racetrack casino with a net take of $60 million for a year would have a 22 percent tax, or a $13.2 million bill.

The second methodology would use true graduated tiers by taxing racetrack casinos based on each revenue level the casino achieves. That would allow a graduated benefit of the lower tiers, similar to the way federal income taxes are assessed. Under the second methodology, a casino with a $60 million net take would have a tax rate of 15 percent for the first $15 million, an 18 percent rate for revenues from $15 million to $30 million, a 20 percent rate for revenues from $30 million to $45 million, and a 22 percent tax rate for the amount over $45 million. In the example, the tax would amount to $11.25 million.

"If the first methodology using flat tiers had been adopted for fiscal year 2012, approximately $6.3 million less in taxes would have been deposited into the (state's) general fund by the five racetrack casinos," the report stated. "If the second methodology using a true graduated tier structure had been adopted, approximately $15.8 million less in taxes would have been deposited in fiscal year 2012."

Downs' general manager's take

"In reference to a tiered tax or progressive tax structure, we don't intend to pursue that in this legislature," said Shaun Hubbard, general manager of Ruidoso Downs. "However, I think there's alternative methods out there that we may proceed with. But we have no intentions of pursuing the progressive tax."

Hubbard said the approach his casino would like to see taken will be revealed later.

He applauded the Gaming Control Board for the study and pointed to the revenues in the report.

"So they can understand exactly what revenues are being brought in to the state from the racinos," he said. "Look at the tax structures and the number of dollars that the five racinos in the state produce for the state. It's a large amount."

For fiscal year 2012, the five racetrack casinos in New Mexico generated a combined $247.3 million in revenues sending $64.3 million to the state's general fund. For the same period tribal gaming operations generated a combined $740 million and delivered $68.1 million to the general fund.

Top rates would grow bigger

The study asked the question, "Who picks up the loss in tax revenue?"

The progressive tax structure might have to have the various tiers adjusted to reach what was called a "zero sum gain/loss" to the state's general fund.

"If the state were to remain whole, the racetrack casinos having a higher net take would be subject ... to a gaming tax rate that is higher than the current 26 percent," the report noted.

Other options raised by the Gaming Control Board looked beyond taxation. One possibility at parity with tribal casinos was to allow racetrack casinos to operate more slot machines, increase the hours of operation and/or permit table games. But the study also noted that gaming compacts with New Mexico tribes would have to be renegotiated to implement such changes.

Another possibility looked at reducing or eliminating the excise tax on the sale or lease of gaming machines.

"In evaluating the feasibility of a restructuring of taxation, consideration should be given to the impact that a change in tax rates would have on the racetrack casinos and local economies," the study noted. "The impact of any reduction in the racetrack casinos portion of net take could impact employee compensation, contractual services, capital outlay projects and expansion plans that generate jobs and income for the local communities. In terms of overall tax dollars collected by the state, a thorough economic analysis and study should be conducted to determine the total amount of revenue generated by the operation of a racetrack casino. Such an analysis and study was initially attempted but it became quickly obvious that such an effort was beyond the scope and expertise of the Gaming Control Board and staff."